New Bank of England governor Mark Carney met resistance in his recent move to link interest rates with employment, according to the minutes of the last rate-setting committee meeting.
The minutes of the Monetary Policy Committee (MPC) meeting show that policymaker Martin Weale voted against the plan at the July 31-August 1 meeting.
In the first iteration of its new ‘forward guidance’ policy, the Bank announced after the meeting that interest rates and quantitative easing would stay at supportive levels until unemployment rates fall to 7 per cent.
Although supportive of forward guidance itself, Mr Weale wanted a shorter time horizon than proposed for the first ‘knock-out’, which gives the Bank the power to raise rates sooner if inflation stays too high for a period of 18-24 months.
“The fact that the minutes of this month’s MPC meeting show that one member voted against the decision to implement forward guidance will hardly help to reassure the markets about how firm the MPC’s commitment is,” Vicky Redwood, chief UK economist at Capital Economics said.
“With gilt yields rising further after this release (after steady increases yesterday), the MPC may have to take further action to head off what it has termed the “unwarranted” rise in market rate expectations,” she added.
Gilt yields rose to two year highs last night ahead of this morning’s UK jobs data, which has taken on a new significance now that interest rates - and, to an extent asset purchases - have been linked with the unemployment rate.
But the unemployment rate was revealed this morning to have stayed unchanged at 7.8 per cent, cooling fears that interest rates could rise sooner than expected if joblessness suddenly falls.